GUANGZHOU, China (Reuters) - The Communist Party chief of Guangdong province stepped in to mediate a standoff over censorship at a Chinese newspaper on Tuesday, a source said, in a potentially encouraging sign for press freedoms in China.

The source close to the Guangdong Party Committee said Hu Chunhua, a rising political star in China who just took over leadership of Guangdong province last month, had offered a solution to the dispute that led to some staff at the Southern Weekly going on strike.

The drama began late last week when reporters at the liberal paper accused censors of replacing a New Year letter to readers that called for a constitutional government with another piece lauding the party's achievements.

Under Hu's deal, the source said, newspaper workers would end their strike and return to work, the paper would print as normal this week, and no one would face punishment. "Guangdong's Hu personally stepped in to resolve this," the source said.

The standoff at the Southern Weekly, long seen as a beacon of independent and in-depth reporting in China's highly controlled media landscape, has led to demands for the country's new leadership to grant greater media freedoms.

The apparent concessions by authorities in the standoff could be seen as an indicator of new party leader Xi Jinping's reformist inclinations.

Earlier in the day, Chinese police broke up scuffles outside the gates of the paper in Guangzhou between leftist pro-government supporters and activists protesting against the Southern Weekly's press restrictions.

(Additional reporting by John Ruwitch in Shanghai; Sui-Lee Wee and Fiona Li in Beijing; Editing by Nick Macfie and Pravin Char)